PREVIEW: US to sell USD 55bln in 5-year notes at 17:00 GMT / 13:00 ET

THIS WEEK'S SUPPLY: The Treasury will auction a new 2-year note (USD 54bln, Tuesday), a new 5-year note (USD 55bln, Wednesday) and a new 7-year note (USD 55bln, Thursday) for a total USD 114bln. This week, USD 110bln of cashflows will fall due, including USD 101bln of redemptions and USD 9bln of coupons, UBS says.

AUCTION PREVIEWS: Month-end is judged to be bullish for Treasuries this month, the long-end at least, and analysts at BMO think this could help with the 2s/5s/7s supply. This month, concessions have come amid a bearish backdrop for the Treasury complex, and BMO says that a similar dynamic for 2s/5s/7s would mesh well with a bit of flattening respite at roughly current levels. "This is not to suggest a broad repricing of the front-end is in the offing, but rather a modest drift higher in yield within the broader trading zone would help bring bidders to auction." Once again, all three of this week's Tresury auctions will see record sizes, but BMO thinks that given the previous absent supply driven surge in Treasury yields, it anticipates the backup to the local yield highs will entice sufficient dip buying to effectively clear all three auctions. "Indeed, the solid bid that materialized last month for 2s, 5s and 7s coupled with the effectively on-the-screws stop for 3s in October sets a constructive stage this week’s supply."

5-YEAR PREVIEW: SocGen says “the 5y sector looks fair from a relative value perspective. On an outright basis, the sector appears cheap, as its when-issued yield is well above all auction stops since April. The 2s5s curve has flattened recently, and any further flattening will make the 2y sector more attractive on a relative value basis. Like the 2y auction, demand for the 5y auction has fluctuated lately, depending on foreigners' take-up. Given the strong yield pick-up offered by Treasuries, the 5y sector could see decent demand from foreigners. While low dealer holdings in the 3-6y sector are also a positive, the increased auction size is a negative. We are slightly positive on the auction.”

5-YEAR AUCTION HISTORY:

• High-yield: (prev. 0.275%, six-auction average 0.31%)


• Tail: (prev. -1bps, six-auction avg. -0.2bps)


• Bid-to-cover: (prev. 2.52x, six-auction avg. 2.52x)


• Dealers: (prev. 20.7%, six-auction avg. 23.5%)


• Direct: (prev. 17.4%, six-auction avg. 15.4%)


• Indirect: (prev. 61.9%, six-auction avg. 61.1%)

28 Oct 2020 - 16:10- Fixed IncomeResearch Sheet- Source: Newsquawk